More backtracking on #VATMOSS for microtraders

Important VATMOSS update
In December 2017 the European Commission approved a package of reforms to the VATMOSS system. Please visit the VATMOSS resource page for more information. The below post, which is now outdated, will remain here as an archive.

On 8 January HMRC issued a briefing on VATMOSS aimed at UK microtraders whose turnover is below the UK VAT registration threshold of £82,000.

It announces several “simplifications” on EUVAT compliance for these traders.

The first pertains to the requirements for two different pieces of data to prove the customer’s place of supply. HMRC is now

“allowing businesses below the UK VAT registration threshold to exercise their best judgement. This means businesses can rely on any single piece of information, such as the address provided by the customer, to determine where their customer is located.”

It’s incredible, really – over the course of the VATMESS we have gone from being required to follow this flowchart (click to view full size if you dare)


to being told to “use our best judgement.” Make up your minds already: are we naughty tax dodgers or are we fledgling Bransons?

A word of warning: I have done enough work on contracts to know that concepts like “best judgement” do not hold up well in project disputes. With European tax authorities going after microtraders in other countries for sums that would barely pay the airmail postage of the invoices, the risk is that another country demands that you provide multiple data points for proof of supply on transactions where your proof – under your own domestic tax regulation – is your “best judgement”. What could possibly go wrong?

The second concession deals with the critical issue of who and what constitutes a business. The VATMESS was borne out of tax bods and bureaucrats expressing bewilderment at the existence of microenterprises after the fact. That carelessness imposed outrageous compliance requirements onto kitchen table businesses and self-employed startups at their most vulnerable stage.

HMRC now says:

There is no registration threshold on cross border supplies of services and businesses of all sizes fall within the scope of the changes. However, this only applies where supplies are made in the course or furtherance of a business. If activity is carried out as a hobby (ie only on a minimal and occasional basis), HMRC does not normally see this as a business activity for VAT purposes. HMRC’s analysis of the VAT MOSS returns submitted by UK businesses so far indicate that some of those registered for VAT MOSS may not be in business for VAT purposes. HMRC will contact those already registered for VAT MOSS whose returns suggest they may not be in business.

The VATMOSS reform was supposed to be about going after multinationals using complex tax structures to funnel billions of pounds of sales through third countries. Instead, it is now about the employees of tax authorities having to review payments made on the proceedings of four- and even three-figure incomes to remove people from the VATMOSS system who never should have been included in it in the first place.

I wonder who will get a gong for coming up with that one?